102087589 Retail Book Chap02 An AGVS will be used to satisfy the material flows in the from-to chart below, which shows delivery rates between stations (pc/hr, above the slash) and distances between s PDF

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An AGVS will be used to satisfy the material flows in the from-to chart below, which
shows delivery rates between stations (pc/hr, above the slash) and distances between
stations (m, below the slash)....

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CHAPTER 2: TYPES OF RETAILERS INSTRUCTOR NOTES

ANNOTATED OUTLINE I. Retailer Characteristics •

The 1.5 million U.S. store-based retailers range from street vendors selling hot dogs to large corporations.

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The most basic characteristic of a retailer is its retail mix--the elements used to satisfy its customers' needs.

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The retail industry is always evolving. As consumer needs and competition within the industry change, new retail formats are created to respond to those changes.

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Four elements of the retail mix that are particularly useful for classifying retailers are: (1) the type of merchandise sold, (2) the variety and assortment of merchandise sold, (3) the level of customer service, and (4) the price of the merchandise.

Ask students to compare the four elements of the retail mix -- the type of merchandise sold, the variety and assortment of merchandise sold, the level of service provided to customers, and price -of two women's specialty stores in a local mall. Now compare the retail mixes of one of the specialty stores and the local discount store (e.g., Wal-Mart). Use this comparison to illustrate how the competition between the two specialty stores is stronger than the competition between the specialty store and the discount store.

PPT 2-4, 2-5, and 2-6 illustrate classification of retailers by merchandise offering and by variety and assortment. See PPT 2-7 for a classification of retailers according to NAICS codes.

A. Type of Merchandise •

The US Bureau of the Census uses a classification scheme to collect data on business activity in the US. It classifies all retail firms into a hierarchical set of six-digit North American Industry Classification System (NAICS) codes. Developed jointly by the U.S., Canada and Mexico, NAICS provides comparable statistics about business activity in North America.

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The first two digits of NAICS denote the sector. The third digit denotes the sub sector. The fourth digit represents the industry group. The fifth digit provides a further breakdown, while the last digit, not always used, may differ between the U.S., Canada and Mexico.

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While a retailer's principal competitors may be other retailers with the same NAICS code, there are many exceptions. The degree to which retailers compete isn't simply based on the similarity of their merchandise. The variety and assortment of the merchandise 28

Use the NAICS discussion to explore categories students may not have considered under the classification (motor vehicles and parts, for instance).

they offer and the services they provide must also be considered. See PPT 2-4, 2-5

B. Variety and Assortment. •

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Ask students to give examples of local retailers with low variety and high assortment, with high variety and low assortment.

Variety is the number of different merchandise categories a retailer offers. Assortment is the number of different items in a merchandise category. Each different item of merchandise is called a SKU (stock keeping unit).

What benefits does high variety offer to customers? What is the benefit of high assortment?

Variety is often referred to as the breadth of merchandise and assortment is referred to as the depth of merchandise.

C. Services Offered •

Retailers also differ in the services they offer customers. Customers expect retailers to provide some services--accepting personal checks, providing parking, and being open long and convenient hours.

D. Prices and the Cost of Offering Breadth and Depth of Merchandise and Services •

When a retailer offers many SKUs, inventory investment increases because the retailer must have back-up stock for each SKU.

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Similarly, services attract customers to the retailer, but they are also costly.

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A critical retail decision involves the trade-off between costs and benefits of maintaining additional inventory or providing additional services.

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To make a profit, retailers that offer broader and deeper assortments and services need to charge higher prices.

Ask student to give an example of an SKU.

Discuss the different customer service policies of a national specialty store like Victoria’s Secret and their local department store or an Internet retailer. Discuss the type of customer that would shop in each store. How are they different and what type of services would they expect?

Customers like wide variety, deep assortments, and a lot of service, though some customers appreciate having the retailer edit the assortment for them. Ask students why all retailers don’t have this type of offering? (Can’t be everything, have constraints of money and size of store.) Why don't discount stores offer more services? (They appeal to a target segment that does not want to pay the cost for more service options.)

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See PPT 2-8, 2-9, 2-10

II. Food Retailers •

Twenty years ago, consumers purchased food primarily at conventional supermarkets. Now conventional supermarkets account for only 61 percent of food sales.

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Discount stores, supercenters, conveniences stores and warehouse clubs are significantly changing consumers' food purchasing patterns because they too sell food. At the same time, traditional food retailers carry many nonfood items.

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The world's largest food retailer is Wal-Mart with supermarket-type sales of more than $100 billion.

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A conventional supermarket is a selfservice food store offering groceries, meat, produce, and limited non-food items.

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A limited assortment supermarket (also called an extreme value food retailer) only stocks about 1, 250 SKUs. The two largest US examples of these stores are Save-A-Lot and ALDI.

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Limited assortment supermarkets are designed to maximize efficiency and reduce costs through limited assortment and service offerings. These cost savings and efficiencies allow the stores to charge significantly lower prices than conventional supermarkets.

PPT 2-11 describes the Save-A-Lot retail strategy.

Ask students about why they would continue to shop at conventional supermarkets. Alternatively, why would they shop for food at supercenters, discount stores or convenience stores? What types of needs are fulfilled by conventional supermarkets that can’t be filled through other food retailing formats? Based on these discussions, will conventional supermarkets be driven out of business by competing formats?

1. Trends in Food Retailing Today, conventional supermarkets are under tremendous competitive pressure. Supercenters are attracting customers with their broader assortments and general merchandise at attractive prices. Discount chains and even dollar stores are increasing the amount of shelf space they devote to consumables.

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Low cost competitors are especially challenging for conventional supermarkets because of their superior operating

PPT 2-10 summarizes various elements of different types of food retailers.

Ask students to consider the retail mixes of the major supermarkets in the area surrounding campus. Which compete on price? On merchandise? On service? A combination?

A. Supermarkets

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Ask students to compare food retailers on variety, assortment, service, and price.

See PPT 2-12, 2-13, 2-14, 2-15 for coverage of Trends.

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efficiencies. In response, some conventional supermarket chains have implemented efficient customer response (ECR) programs to reduce excess inventory, through just-in-time inventory management and better assortment planning. •

To compete successfully with intrusions by other types of retailers, conventional supermarkets have taken steps to differentiate their offerings, such as emphasizing their “power perimeters” (areas around the outside walls with fresh perishables such as dairy, produce, florist, deli and bakery departments).

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Conventional supermarkets are also offering more natural, organic, low-fat, low-sugar, and low-salt products for their increasing health conscious consumers and those with specific dietary needs.

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Through adjustments to the traditional merchandise mix, conventional supermarkets have begun to specifically target more ethnic shoppers.

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Increased emphasis on private label brands and enhancements to the shopping experience are other techniques conventional supermarkets are using to remain ahead of the competition in the food retailing sector.

B. Supercenters The supercenter is one of the fastest growing retail formats. Why is the supercenter more attractive than a hypermarket in the U.S., but not in Europe? What are benefits to consumers shopping in supercenters versus conventional supermarkets? What are the disadvantages?

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Supercenters are the fastest growing retail category. At 150,000 to 220,000 square foot these stores offer a wide variety of food and non-food merchandise. The largest supercenters are Wal-Mart supercenters, Meijer, Kmart and Fred Meyer.

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By offering broad assortments of grocery and general merchandise under one roof, supercenters provide a one-stop shopping experience.

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However, since supercenters are very large, some customers find them inconvenient because it can take a long time to find the items they want.

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Where do students fall on the debate over the proliferation of supersize stores? Have any of their hometowns faced a battle over the building of a Wal-Mart or other supercenter? Ask students why they believe feelings run so deep on this particular retailing issue.

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Hypermarkets are also large (100,000 to 300,000 square feet) combination food and general merchandise retailers. They typically stock less SKUs than supercenters.

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Popular in both Europe and South America, hypermarkets are not common in the United States. Located in large, warehouse-type structures with large parking facilities, hypermarkets typically carry a larger selection of food items than supercenters with a focus on perishables.

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Supercenters place greater emphasis on general merchandise and dry grocery items such as breakfast cereals and canned goods.

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Although supercenters and hypermarkets are the fastest growing categories in global retailing today, these retailers do face challenges in finding and acquiring appropriate land for building, along with backlash against these supersize stores, particularly in the U.S. Ask students to give local examples of warehouse clubs. What is the target market for warehouse clubs? (Consumers with larger families and small businesses.)

C. Warehouse Club •

A Warehouse club is a retailer that offers a limited assortment of food and general merchandise with little service at low prices to ultimate consumers and small businesses.

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Stores are large (about 100,000 square feet) and located in low rent districts.

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Warehouse clubs reduce prices by using lowcost locations and store designs. They reduce inventory holding costs by carrying a limited assortment of fast-selling items.

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Most warehouse clubs have two types of members: wholesale members who own small-businesses and individual members who purchase for their own use. Typically members must pay an annual fee of $35 or $45.

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Are warehouse clubs wholesalers or retailers? (When they sell to small businesses they are wholesalers.)

D. Convenience Stores •

Convenience stores provide a limited variety and assortment of merchandise at a convenient location in a 2,000-to-3,000square-foot store with a speedy checkout. They are a modern version of the neighborhood mom-and-pop grocery/general store.

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Convenience stores enable consumers to make purchases quickly without having to search through a large store and wait in long checkout lines.

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Convenience stores only offer a limited assortment and variety; they charge higher prices than supermarkets.

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Convenience stores are facing increasing competition from other formats, especially from supercenters and supermarket chains who have added gasoline to their merchandise offerings.

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In response to these competitive threats, convenience stores are taking steps to decrease their dependency on gasoline sales by tailoring their merchandise assortments to local markets and making their stores even more convenient to shop.

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Ask students to give examples of local convenience stores. Why do customers go to convenience stores? What do they like/dislike about them? In general, what is so "convenient" about convenience stores?

See PPT 2-16, 2-17

III. General Merchandise Retailers •

PPT 2-17 compares the various types of general merchandise retailers along several characteristics.

The major types of general merchandise retailers are department stores, full-line discount stores, specialty stores, category specialists, home improvement centers, offprice retailers, and extreme value retailers.

See PPT 2-18, 2-19, 2-20

A. Department Stores •

Department stores are retailers that carry a broad variety and deep assortment, offer some customer services, and are organized into separate departments for displaying merchandise.

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Department store chains are very diverse. There are those that carry relatively inexpensive products and compete closely with discount stores, including Sears and Kohl’s; traditional departments stores like Macy’s selling modestly priced merchandise with moderate customer service; and chains that sell very expensive, exclusive merchandise that compete with high-end specialty store chains, such as Neiman Marcus, Polo/Ralph Lauren, and Saks Fifth Avenue.

Ask students to give examples of local department stores. Why do customers go to department stores? What do they like/dislike about them?

Ask students to give local examples of specialty stores. What is the difference between specialty stores and department and discount stores? Where do students buy business suits, dresses, jeans, computers, electronics? Why do they go to that type of store? Why do some people shop at department, discount and specialty stores?

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The largest department store chains in the U.S. are Macy’s, Sears, JCPenney, and Kohl’s.

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Each department within the store has a specific selling space allocated to it, a POS terminal to transact and record sales, and salespeople to assist customers.

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The major departments are women’s, men’s, and children’s clothing and accessories; home furnishings and furniture; and kitchenware and small appliances.

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Today many customers question the benefits of shopping at department stores due to: (1) lack of convenient locations, (2) decreases in customer service and (3) relatively high prices.

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In response to declining market share and customer indifference, department stores are 34

aggressively working to differentiate their merchandise offerings and to strengthen their images. One approach to this differentiation is through pursuing exclusive contracts with popular national brands. Another approach is the development of department stores’ own private label brands, such as Macy’s INC and Tools of the Trade. See PPT 2-21

B. Full-Line Discount Stores •

A full-line discount store is a retailer that offers a broad variety of merchandise, limited service, and low prices. They offer both private and national brands, but these brands are typically less fashion-oriented than brands in department stores.

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The big three full-line discount store chains are Wal-Mart, Target and Kmart .

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The most significant trend in this sector is Wal-Mart’s conversion of discount stores to supercenters as a result of increased competition faced by the full-line discount stores, as well as the significant operating efficiencies realized by supercenters.

In general, what are the factors that contribute to the success of discount stores despite increasing competition from other formats?

See PPT 2-22

C. Specialty Stores •

A specialty store concentrates on a limited number of complementary merchandise categories and provides a high level of service in a relatively small store.

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In recent years, specialty apparel has been one of the weakest, slowest-growing categories in store-based retailing. One reason is an aging population: older people typically don't spend as much money on clothing as teenagers.

Discuss the target markets of the three largest general merchandise discount store chains. (WalMart, Target and Kmart). How will the category specialists (Toys R Us) affect the retail strategy of general merchandise discount stores? What about Internet only retailers? Are discount stores going to succeed in the “clicks” environment?

Ask students to give examples of local specialty stores. Why do customers go to specialty stores? What do they like/dislike about them?

Specialty stores tailor their retail strategy toward a very specific market segment. One specialty retailer, Hot Topics, focuses on selling licensed, music- inspired apparel to teenagers in mall-based stores. Ask students what retail strategy elements must be in place for a retailer like Hot Topics to remain successful. See PPT 2-23

D. Drugstores •

Drugstores are specialty stores that concentrate on health and personal grooming merchandise. Pharmaceuticals often represent 50 percent of drugstore sales and an even greater percentage of their profits.

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Drug stores, particularly the national chains, 35

Ask students if they have shopped online for drugstore products. What has been their experience? Do they think the Internet is a viable channel for drugstore merchandise?

are experiencing sustained sales growth because the aging population requires more prescription drugs. •

Prescription pharmaceutical margins are shrinking due to governmental health care policies and HMOs.

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In response, drug store chains are building larger stand-alone stores offering a wider assortment of merchandise, more frequently purchased food items, and drive-through windows for picking up prescriptions. Also, drugstore retailers are encouraging pharmacists to take the time to provide personalized service. See PPT 2-24

E. Category Specialist •

Ask students to give local examples of category A category specialist is a discount store that specialists. How are they similar to specialty offers a narrow variety but deep assortment of stores? Discuss the differences and similarities with discount stores. merchandise. These retailers are basically discount specialty stores.

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Most category specialists use a self-service approach, but some specialists in consumer durables offer assistance to customers.

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By offering a complete assortment in a category at low prices, category specialists can "kill" a category of merchandise for other retailers and thus are frequently call...